The Effect of Intellectual Capital and Capital Adequacy on Credit Risks and Financial Performance (A Study of Commercial Banks at the Indonesia Stock Exchange )

Ketoet Astawa ,Suhadak ,Sri Rahayu

doi:10.7176/rjfa/10-10-22

Abstract

This study aims to examine and explain the effect of intellectual capital and capital adequacy on credit risk and financial performance. Effect of credit risk on financial performance. The study population was 43 with a sample of 31 Commercial Banks that had been listed on the Indonesia Stock Exchange. The observation period from 2012 to 2016. The sampling method was purposive sampling, data of 155 bank financial statements. The data analysis technique uses statistical procedures to test hypotheses with the Generalized Structured Component Analysis (GSCA) software.The finding of this study is that intellectual capital has a negative and significant effect on credit risk. Intellectual capital has a positive and significant effect on financial performance. Capital adequacy has a positive and significant effect on credit risk, and financial performance. Credit risk has a negative and significant effect on financial performance. This study suggests that managers of banks, especially bank go public, pay more attention to the variable intellectual capital in the sense that any additional investment in the 3 IC components (human capital, structural capital and capital employed) can be efficiently used to create value added and increase company value. IC is the only source of value creator in the future, which implicitly utilizes tangible and intangible assets and mitigates risk optimally. Recommendations for further research can expand the general banking sector population in longer research periods to get better results. Keywords : Intelletual capital, capital adequacy, credit risk, financial performance DOI : 10.7176/RJFA/10-10-22 Publication date :May 31 st 2019

Highlights

Commercial banks as business entities are always oriented towards maximizing profits to improve the welfare of owners and other stakeholders
The findings of this study support and confirm the research concept of Asadi (2013) which states that intellectual capital and its components have a significant effect on the company's financial performance
6 Conclusion The Intellectual capital has a significant effect on the negative direction of credit risk

Summary

Introduction

Commercial banks as business entities are always oriented towards maximizing profits to improve the welfare of owners and other stakeholders (including management, employees, customers, government and the general public). (2) Test empirically the effect of intellectual capital, capital adequacy, credit risk, on financial performance in the banking industry in Indonesia. Previous research has shown that intellectual capital has a positive effect on financial performance as measured by company profitability: return on assets, and return on equity, earnings per share. Hosna et al, (2009) found that the non-performing loan indicator carried out profitability as measured by (ROE) more than the capital adequacy ratio, and the effect of credit risk management on profitability was not the same for all banks. The conceptual framework of this research was developed based on Intellectual Capital Theory (Pulic, 1998), capital structure theory within the framework of corporate risk management aims to increase profitability, optimal capital structure, and improve bank financial performance. The type of data used in this study is secondary data in the form of financial report documents and company annual reports, which are sourced from the Indonesia Stock Exchange through the site http://www.idx.co.id

Description of Research Variables and Indicators

Measurement Model Test Results

Inner Model Testing Results

Accepted H2 Accepted H3 Accepted H4 Accepted H5 Accepted

Conclusion